croatian elites and economic growth: are smes an ... · croatian elites and economic growth: are...
TRANSCRIPT
Croatian Elites and Economic Growth: are SMEs an appropriate
anti-crisis tool?
1989-2014: Twenty –five Years After. What was happened to the Societies in Central and
Southeast Europe since the Fall of the Iron Curtain?
Graz, September 18-20, 2014.
Drago Čengić
Institut Ivo Pilar, Zagreb
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Aim of the paper and operational hypothesis
* To warn about social, political and economic disfunctions of the current type of government/state policies in the area of small and medium-sized entreprises (SMEs) in Croatia.
* Given and planned policy-measures supporting different types of entrepreneurs do not effectively help those enterprises that are capable of giving impetus to a new cycle of economic growth.
* Our working hypothesis: the causes of long-term economic depression lie in impotence of economically incompetent political elite to act developmentally and not only as the elite exercising political control at all main levels of socio-economic system.
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Offical standpoint…
*Strategy for Entrepreneurship Development in Croatia 2013-2020:
- General aim: to increase competitiveness of „small economy”…
- Five strategic goals: from improvement of economic performance of SMEs, promotion of entrepreneurship, to creating a more business-friendly environment for entrepreneurs and international investors…
* Basic assumption:
Croatian SMEs have appropriate ownership, management and developmental potential to pull out the whole economy out of crisis!
Yet: what if that hypothesis is wrong? In that case: who could be the main economic anti-crisis
agent/s?
The owners of large Croatian enterprises?
State/public enetrprises?
The owners of large regional/international companies operating in Croatia? Foreign investors of different profiles?...
There are no many public discussions about these dilemmas so far…and GDP rate is for almost 6 years below „zero”!
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Croatian economy 2002-2009
Years Enterprises
Large (N, %) Medium (N, %) Small (N, %) SMEs economy (S+M) Total
2002. 720 1,1 2.279 3,6 60.562 95,3 62.841 98,9 63.561 100
2003. 889 1,3 2.597 3,8 64.698 94,9 67.295 98,7 68.084 100
2004. 962 1,4 2.692 3,9 65.327 94,7 70,729 98,5 68.981 100
2005. 1.074 1,5 2.969 4,1 67.760 94,4 70.729 98,5 71.803 100
2006.* 441 0,6 1.480 1,9 76.588 97,5 78.068 99,4 78.509 100
2007. 475 0,6 1.590 1,9 81.467 97,5 83.057 99,4 83.532 100
2008. 453 0,5 1.396 1,6 87.807 97,9 89.203 99,5 89.656 100
2009. 436 0,5 1,446 1,5 89,438 98,0 90,884 99,5 91,320 100
Number of owners/ CEOs (assesment): 91.320
Nuber of employed Enterprises
Large (N, %) Medium (N, %) Small (N, %) SMEs economy (S+M) Total
2002. 350.617 46,5 156.715 20,8 246.854 32,7 403.569 53,5 754.186 100
2003. 375.081 47,1 158.971 19,9 262.844 33,0 421.815 52,9 796.896 100
2004. 386.980 47,7 156.407 19,3 268.389 33,0 424.796 52,9 811.776 100
2005. 391.219 48,1 159.746 19,6 262.797 32,3 422.543 51,9 813.762 100
2006.* 305.263 35,2 172.345 20,0 388.275 44,8 560.620 64,8 865.883 100
2007. 328.856 35,7 181.214 19,7 410.103 44,6 591.317 64,3 920.173 100
2008. 315.117 33,7 170.038 18,2 448.803 48,1 618.841 66,3 933.841 100
2009. 302,161 33,97 164,515 18,49 422,720 47,52 587.235 66,01 889.396 100
Number of employed (assesment): 889.396
2008: the average size of small enterprise = 5,2 employee; medium-sized enterprise = 125; large enterprise = 717 employee.
Source: www.hgk.hr
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Why governments invest so much in SME’s (in „new Europe”)?
* D. Birch (1987): Job generation in America: How our Smallest Companies Put the Most People to Work? New York; Free Press.
* R. Parker (2001): Thy Myth of Entrepreneurial Economy, Work, Employment & Society, 15 (2): 239-253. ---------------
a) Superior economic outcomes are not associated with the size distribution of the enterprises in an economy.
The growth in employment in small enterprises is often attributable to 'push factors', such as using external resources (due to 'outsorcing' practice), decrease in volume of certain business activites/discontinuation of functions (downsizing) in large enterprises and the changes in sectoral composition of employment, and to a lesser degree to 'pull factors' - associated with the vigorous dynamism of small enterprises.
b) Therefore the growth of employment in SMEs is not necessarily associated with their (appropriate) responses to market needs or introducing a new product into the market.
c) Available data do not justify adoption of various public policies designed to promote small enterprises as a specific 'generic class of enterprises'. If so, why is this being done after all?
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Parker’s and Scase’s SMEs’ scepticism
*Parker's reply to this question suggests that ideological aspects of state interventionism in this sector of economy were the crucial ones:
„Political support for small business and entrepreneurship…, should therefore be understood as a component of the broader trend in advanced capitalist economies to encourage more individualistic economic and employment relations…
Policy recommendations designed to promote SMEs prioritise market principles in capitalist economies, which reward individual initiative and high-risk activities...
The celebration of entrepreneurialism emerges more from an ideological concern with restrictions on individual and market freedom than on understanding of the factors contributing to employment generation and innovation in modern economies.“ (Parker, 2001, 11).
* R. Scase (1998): Majority of SMEs in the post-communist countries fall in the category of
survival/small trading enterprises and proprietorship enterprises, and only a minority of SMEs transforms to „classic entrepreneurship“, characteristed by long-term goals, capital accummulation and personal commitment to business development.
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Figure 1. Forms of individual SME activity in post-socialist countries
Survival / Small trading +Proprietorship vs. Entrepreneurship
* Law income * Maintenance orientation * Systemic entrepreneurship
* Trading only * Niche entrepreneurship of * Economic entrepreneurship
a generally transient type (classical)
* No cumulative growth
* Health damage * Surplus generated predomi- - Long-term goals
nantly for personal consum- - Capital accumulation
ption purposes - Personal austerity in order
to build business
Source: McIntyre, 2001., 17.
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Croatian governments and SMEs development, 1990-2014.
* Enterpreneurship is a part of democratic legitimation of different governments
* General approach: state has to support SME’s development due to their capacity to open new jobs!
* Yet:
a) Policies supporting SME’s were under influence of particular political parties’ preferences
b) No policy priorites were set on the basis of unbiased analyses of their actual performance and main agents of economic change in international/(at least) European economy
c) First serious evaluation of the SMEs policy was made under the EU-integration pressure – before entering Croatia into the EU (2012-2013)
d) Continuity matters: still very diffuse policy goals, now including some EU funds for SMEs development…
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Are SMEs creating jobs in Croatia? Yes but…
*V. Šonje, 2002-2008 growth period analysis (Šonje, 2010):
a) At that time, as well as today, the structure of SMEs in Croatia corresponds to the structure of these enterprises in the EU;
b) In terms of contribution to employment growth, Croatia followed the pattern of the new Europe: the highest contribution to employment growth was seen between the years 2002 and 2008, small enterprises ranked first, followed by medium-sized enterprises, and micro-enterprises ranked last among them
c) In this period, in Croatia, likewise, large enterprises contributed little to overall employment.
„The lowest contribution of large enterprises is not only relative but also absolute. Namely, during the last business cycle, from 2002 to 2008, the employment in the enterprise sector in Croatia increased by 189.276, of which 31.627 or 16.7% in micro-sector, 72.290 or 32% in the sector of small, and 46.885 or 24.8% in the sector of medium-size enterprises. This means that the SME sector in its entirety (micro + small + medium-size) increased employment by 150.802 or 79.7% of the total number. Of the number of jobs created in the enterprise sector, only every fifth job (net) was created un the sector of large enterprises“ (Šonje, 2010, 9).
Conclusion: SMEs were in the pre-crisis period main creators of new jobs in the country.
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Many of SMEs saw their limits to growth even before the crisis…
* Owners/ managers’ perceptions of their businesses’ growth: * 25,1% think they can be successful only within county borders (“dwarfs”), * 40,5% think they can prosper mostly within national market (“humanoids”), * 30,7% think they could prosper in the future if operating outside
national market – going internationally… (“giants”) * Typology of enterprises 1) Surviving enterprises (not growing 2005-2008): 84,2% of all
enterprises ! They link their future with national market! 2) Growth enterprises (growing 2005-2008): 15,8% of all enterprises! They link their future with international business projects!
* What’s behind: 1. Problems of growth aspirations of new owners/managers
elite! 2. Problems of export and business operations on international
level: to few want /can to export the products on foreign markets!
(Čengić, 2010; N= 213, 2008/2009)
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Economic performance of the SMEs in the period of GDP growth (2002 – 2008): owners and profit
* Main feature of small enterprises (measured by revenue per employed in HRK in 2008) is their low productivity!
* From the analytic-statistical perspective:
Small enterprises in relation to other types of enterprises show larger share in profit (38,1%) than in income (35,3%), that is they show „the above average profitability“.
* Main reason: enterprise owners want to have profit for their own private purposes.
In other words: the profit is not used for re-investing!
That fact in the long-term period destabilize the development of micro and small enterprises!
(Šonje, 2010., www.hub.hr)
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Then came the crisis (2008 - ?)…
Enterprise closure and survival rates, number of enterprises and employment, 2002 - 2012
Enterprise Number of enterprises Employment
type Closed % of total Survived (%) Closed % of total Survived (%)
Micro 21.946 41,7% 58,3% 50.111 43,5% 56,5%
Small 710 12,2% 87,8% -19.053 -16,0% 116,0%
Medium-
sized 1.215 54,7% 45,3% 35.169 22,9% 77,1%
Large 430 60,0% 40,0% 113.766 32,5% 67,5%
SMEs total 23.871 39,3% 60,7% 179.993 24,4% 75,6%
Total 24.301 39,6% 60,4% 179.993 24,4% 75,6%
Coops 312 52,2% 47,8% 1.645 47,8% 52,2%
Crafts 849 55,3% 44,7% 5.244 42,2% 57,8%
Total 25.462 40,1% 59,9% 186.882 24,8% 75,2%
Source: ACE, Minpo RH, 2013.,18
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Some anti crisis strategies in metal and wood-processing industry (2011, n=371)
* Only 7,3% of enterprises were not hit by the crisis!
The crisis was fully recognized by managers in 2009 while official politics still denied it will affect Croatia’s economy deeply (Prime minister Sanader!).
* Enterprise anti-crisis strategies dependent not on real financial debts of enterprises or Government’s anti-crisis measures (Prime minister Kosor!) but on autonomous activities of managers and the resources they had at disposal…
They were left on their own! * Identified anti-crisis orientations: 1. Customer oriented – good price, good quality of the products…
2. Aquisition strategy – minority of the enterprises
3. Investing in market leadership and status-quo strategy in old markets
4. Strategy of penetration to foreign markets and making of new business alliances – minority of enterprises
5. Stabilization strategy by state subventions – minority of enterprises.
(Čengić, 2011)
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Economic performance of enterprises in 2012 – to small to play bigger games…
SME's sales revenue by size of enterprises (%-ages), 2012
Enterprise Total < 0,5 mil EUR 0,5–1 mil. EUR 1–2 mil. EUR 2–5 mil EUR < 5 mil. EUR
type
Micro 78.819 94,8% 3,10% 1,4% 0,57% 0,16%
Small 8.223 29,7% 23,35% 22,2% 18,9% 5,83%
Medium-
sized 1.268 0,9% 1,10% 3,6% 20,27% 74,13%
SMEs 88.310 87,4% 4,96% 3,3% 2,56% 1,75%
Large 340 0,6% 1,76% 97,65%
Total 88.650 87,1% 4,94% 3,3% 2,55% 2,11%
* Although creating jobs in growth period, they have no developmental potential for long-term growth and competition on foreign markets!
Source: ACE, Minpo RH, 2013.,14.
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Conclusions 1.
* When focusing on the state-driven measures to support the SME development, the example of Croatia generally confirms one of the key R. Parker’s thesis: that state support for small business is more a component of the development of individualistic economic and employment relations (within the framework of new philosophy of deregulation and free market), than a well designed response to actual or non-existent contribution of SMEs to economic growth.
*Although during growth period (2002-2008) SMEs created a significant number of new workplaces in Croatia, their development and economic potential is very modest when compared internationally.
* Additionally, the state investments in the SME development over the past twenty years were derived more from a populist intention toward entrepreneurship development as a constituent part of overall democratic legitimacy than from strategic analysis of the sources and agents of economic development in global economy.
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Conclusions 2.
* Concerning strategic priorities: the Croatian Government and relevant ministries still have not found the best policy/supportive measures for the growing enterprises.
Šošić and co-workers showed that „Croatian gazelles“ (and they are seen in all economic activities) occur mostly autonomously among enterprises, thanks above all to smart business ideas of their owners and managers rather than to support measures by the state (see Šošić, 2012).
* Yet, there is no deeper change in policy design towards SMEs…
* If changed, the questions are: whom to help, why and how?
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Conclusions 3.
* It seems that Scase's general scepticism toward the small and medium-sized entrepreneurship applies for the Croatian circumstances as well…
*For the economic future of Croatia’s managerial and entrepreneurial elite it is of the main importance to understand where is the origin of individual and collective agreeing to „perspective of limited good“ and low aspiration for growth:
is it a question of the „cultural matrix“ of the society or of the „rules of the game“ and „structure of economic opportunities“ established by political actors, which in the end result in the perception of national environment as an „environment without proper business opportunities“?
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